AutoNation Earnings in Line, Up Y/Y

Zacks

AutoNation Inc. (AN) posted a 10.3% rise in earnings per share to 75 cents in the first quarter of 2014 from 68 cents in the same quarter of 2013. However, earnings per share were in line with the Zacks Consensus Estimate. Net income improved 8.8% to $90.5 million from $83.2 million in the first quarter of 2013.

Operating income increased 11.6% to $189.1 million or 4.3% of sales from $169.4 million or 4.1% a year ago. Improvement in operating income and earnings per share was driven by better gross profit earned in all business sectors.

Revenues increased 6.5% to $4.36 billion, marginally missing the Zacks Consensus Estimate of $4.39 billion. The revenue growth was attributable to strong performance in all business sectors. The company’s Premium Luxury segment was the biggest gainer in the quarter.

New vehicle revenues escalated 7.6% to $2.4 billion with new vehicle unit sales rising 6.1% to 71,223 vehicles. Revenues per vehicle increased 1.4% to $34,099. On a same-store basis, new vehicle revenues rose 5.8% to $2.4 billion.

Used vehicle (retail and wholesale) revenues increased 4% to $1.05 billion on a 5.2% revenue rise in the retail section, which was partially offset by a 6% decline in wholesale revenues. Unit sales increased 3.2% to 52,136 vehicles, revenues per vehicle rose 1.9% to $18,141. On a same-store basis, used vehicle revenues increased 2.4% to $1.03 billion.

Revenues in the Parts and Service business grew 5.4% to $671 million in the quarter. Meanwhile, Finance and insurance business recorded a 10.8% increase in revenues to $172.4 million.

Segment Details

Revenues in the Domestic segment – comprising stores that sell vehicles manufactured by General Motors Co. (GM), Ford Motor Co. (F) and Chrysler – increased 6.9% to $1.47 billion as unit sales rose 5.6% to 23,815 vehicles. The segment’s operating income improved 8.9% to $63.8 million in the first quarter of 2013.

Revenues in the Import segment – consisting of stores that sell vehicles manufactured primarily by Toyota Motor Corp. (TM) and other Japanese automakers – increased 3% to $1.55 billion on a 5.7% rise in unit sales to 34,925 automobiles. Operating income at the segment dropped 7.9% to $65.4 million in the quarter.

Revenues in the Premium Luxury segment – consisting of stores that sell vehicles manufactured primarily by Mercedes, BMW and Lexus – advanced 11.4% to $1.3 billion. Unit sales rose 7.8% to 12,483 vehicles. The segment's operating income improved 21.1% to $83.3 million in the quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents increased to $69.2 million as of Mar 31, 2014 from $46.3 million as of Mar 31, 2013. The company’s inventory was valued at $2.7 billion as of Mar 31, 2014 versus $2.5 billion as of Mar 31, 2013.

Non-vehicle debt decreased to $1.8 billion from $1.96 billion as of Mar 31, 2013. Capital expenditures increased to $34.9 million in the said quarter from $23.1 million in 2013.

Share Repurchase Program

AutoNation repurchased 2.4 million shares for an aggregate price of $115.7 million in the first quarter of 2014. As of Apr 16, 2014, AutoNation had around $400 million remaining for share repurchase and 119 million shares outstanding.

Our Take

AutoNation expects new vehicle sales in the U.S. to increase 3– 5% to above 16 million units in 2014.

AutoNation is the largest automotive retailer in the U.S. and is headquartered in Fort Lauderdale, FL. As of Apr 17, 2014, the company owned and operated 270 new vehicle franchises that sell 33 brands in 15 major metropolitan states. Currently, the company retains a Zacks Rank #4 (Sell).

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